Smooth Shading option not working
It looks like most of the faces in the model are disconnected. When you activate smooth shading on disconnected faces, Blender treats each one individually and it looks like flat shading because each face's boundary is handled independently from its neighboring faces.

It's best to model (or import) objects with connected faces if you want to use smooth shading, but here is a quick and dirty way to join most of the faces in your model:


Select the object.
[TAB] into Edit Mode.
[A] to select all vertices.
Mesh > Vertices > Remove Doubles


This will join most of the faces and you will get smooth shading for the most part. You will probably need to manually repair some faces to get it working across the entire object.